Can Affirm's growth keep it ahead of PayPal, Afterpay?

The buy now/pay later provider Affirm Holdings reported strong payment volume and revenue growth, but other factors weighed on earnings — creating headwinds while PayPal’s new Pay in 4 product and Australia's Afterpay stand ready to pounce.

The most notable comparison between what’s occurring at Affirm and PayPal is the growth in gross merchant volume (GMV), which is the metric used for tracking the dollar volume of purchases made at participating merchants. Here, Affirm remains in the lead.

Affirm had a gross merchant volume of $2.3 billion for its third fiscal quarter, which ended March 31. That was up almost 10% from the quarter that ended Dec. 31 and up 83% from a year earlier.

PayPal CEO Dan Schulman reported last week that in his company’s March 31-ending quarter its Pay in 4 BNPL solution had reached $1 billion in payments volume, up from $750 million in the prior quarter, when it launched. When Schulman spoke about his company’s Dec. 31 quarter he noted that PayPal’s Pay in 4 product experienced the fastest adoption of any new product PayPal had ever seen in its history.

Despite this lead, Affirm's earnings suffered due to two factors — stock compensation related to its IPO and an adjustment for its January acquisition of the Canadian BNPL specialist PayBright for a value of CAD$340 million in cash and equity.

Affirm announced that it was taking a $78.5 million adjustment “to reflect the change in fair value of the contingent consideration liability associated with our acquisition of PayBright Inc., driven by changes in the value of our common stock,” according to the company’s earnings release.

Affirm’s stock closed at $57, which is above its $49 IPO price from January but down significantly from its Feb. 11 high of $139.99, based on data from Google Finance.

PayPal's brand heft isn't the only threat to Affirm. While the Affirm has traditionally competed on selling BNPL installment loans while Afterpay is purely a deferred debit solution, Affirm announced in February that it would be launching a BNPL-linked debit card that could put it on a head-on collision with Afterpay. PayPal offers both BNPL installment loans and the Pay in 4 deferred debit charge solution.

“Affirm delivered another strong quarter that exceeded the financial outlook we provided in February," Max Levchin, founder and CEO at Affirm, said during the company's earnings call. “We more than doubled our active merchant count year over year to nearly 12,000. We accelerated year over year GMV growth to 83% ... and excluding Peloton our GMV grew 100%.”

Levchin was also a founder of PayPal.

Affirm reported that it grew its North American active customer base to 5.4 million in the March 31 quarter, up 60% from 3.3 million in the same quarter one earlier. In contrast, Afterpay reported that it had 8.1 million active customers in North America as of December 31, 2020, up more than double from 3.6 million as of December 31, 2019.

Bright spots in the Affirm numbers included strong revenue growth and a reduction in its reliance on Peloton as a primary merchant. Peloton as a percentage of GMV was 18% in the quarter, down from 25% for the same quarter one year earlier. Peloton also led to a $3.5 million reduction in revenue in relation to Peloton’s voluntary recall of its Tread+ and Tread products.

Travel was a highlight for the quarter, representing 9% of the company’s GMV; it was 11% by the end of April. In September travel represented only 2% of the company’s GMV.

Levchin noted that as the country reopens, Affirm will benefit greatly from customers looking to use its BNPL solutions to finance their travel plans.

Total revenue for the quarter that ended March 31, 2021, rose 67% year over year to $230.7 million. The net loss for the quarter was $247.2 million or $1.06 loss per share, versus a net loss of $85.6 million a year earlier. According to data from FactSet and reported in MarketWatch, analysts had projected a loss of 31 cents a share and revenue of $198 million.